THE government could have used other funds to procure Covid-19 vaccines, said economists, while slamming the government for dipping into the National Trust Fund (KWAN).

They said the fund, which conserves the nation’s wealth from natural resources, is meant for future generations, upon the depletion of the country’s natural resources.

Finance Minister Tengku Zafrul Tengku Abdul Aziz said on Monday that the government would take RM5 billion from KWAN for vaccination expenses.

He said that the RM3 billion for procurement of vaccines as announced when tabling Budget 2021 was not part of the budget itself, and was meant to be taken from the trust fund.

He added the government’s budget deficit will rise to 6.2% of GDP if it did not tap into KWAN funds.

Prominent economist Dr Nungsari Radhi said the limited financial space and a national debt burden of more than RM1 trillion reasoning given by the finance minister was not good enough a reason to tap into the fund.

“As if dipping into KWAN can solve the debt problems,” the former Khazanah Research Institute chairman told The Malaysian Insight.

“He (Tengku Zafrul) budgeted RM17 billion specifically for a Covid Fund in Budget 2021. That didn’t include vaccines? That whole amount has been exhausted?”

“KWAN money is for the generation of Malaysians who will live without oil and gas,” he said, adding that the fund was not huge and, therefore, it should be left alone.

“In 100 years maybe (we can tap into the fund) but not now. And it is not much. Leave it alone,” he said.

KWAN, which is governed by the National Trust Fund Act 1988, is managed by Bank Negara Malaysia.

It was established in 1988 to conserve the nation’s wealth from petroleum and other natural resources for future generations, which includes contributions from Petronas.

As of December 31, 2020, the fund’s balance stood at RM19.5 billion.

Meanwhile, Sunway University Business School’s Professor of Economics Yeah Kim Leng said the government could have instead raised the national debt ceiling to pave way for borrowing.

He said the financial rule can be relaxed under exceptional circumstances such as the current Covid-19 crisis.

“Moreover, borrowing is cheap under the present low interest rate environment,” the former Bank Negara Malaysia monetary policy committee external member said.

“Given the political challenges to raise the debt ceiling, the government could explore asset monetisation and divestment, especially if such sales can help to unlock economic value and lead to a more dynamic private sector and competitive economy.

“Other options include using the 1MDB settlement fees and seeking the return of the SRC International funds withheld by the Swiss authorities,” he added.

He said KWAN was meant to set aside wealth generated from the country’s depleting natural resources for future generations not for use by the current generation.

On the impact of the draw down, Yeah said the reallocation of resources resulting from the move will have a negligible impact on the economy.

However, he said the indirect effects will be increased investors’ wariness of the government’s financial position and its flexibility being constrained by the prevailing political situation.

“The direct impact will be on the fund itself arising from opportunity cost of investment returns foregone.

“The effects of liquidation of the fund’s investment assets will depend on the respective markets but they are not likely to be significant especially if the market size is very large,” he said.

Head of Research at the Malaysian Institute of Economic Research (Mier) Shankaran Nambiar said it was puzzling why there was no budget for vaccines in Budget 2021.

“The decision is clearly a sign that the government is caught in a tight financial crevice. Saddled by pre-existing debt and the failure to generate new sources of revenue, the government is compelled to dip into KWAN funds,” he said.

“Inter-generational security takes on a risk, to which the government’s argument would be that now is that moment that we need to cross.

“Ideally, the government should have introduced taxes that are more wealth-sensitive, resorting to windfall gains and inheritances, but in the absence of any will to do so, there is little choice but to turn to KWAN,” he added.

Tengku Zafrul said the government will not touch on the RM10.4 billion principal, instead the RM5 billion will be sourced from the fund’s return on investments (ROIs) of RM9.1 billion.

He added that the government has limited financial space to manoeuvre and had to tap into the fund instead of borrowing.

He also noted that the RM40 billion debt obligations from 1MDB are enough to cover the cost of vaccines eight times over.

Co-ordinating Minister for the National Covid-19 Immunisation Programme Khairy Jamaluddin said on Tuesday that the vaccines are estimated to cost RM3.16 billion.

This will be sufficient to cover 110% of the population.

He said the government will increase the stock if it is later decided that the jab could be administered to teenagers as clinical trials are now ongoing. The extra doses will also serve as booster shots.

The Finance Ministry has capped the procurement cost at RM3.5 billion for now, he said.

The remaining RM2 billion will be spent on other requirements of the national vaccination drive, including vaccine logistics, equipment, rent and utilities, cleaning and sanitisation, outsourcing manpower, data management and contingency plan, among others. – April 29, 2021.